Investing in PSU Bonds
The PSU bond investment opportunity is worth considering because of its tax benefits and guaranteed yield. The current rate for these bonds is about 8%. If you’re looking for more regular income and want to get rid of your shares, you might consider this option as an alternative.
What is a PSU Bond?
PSU bonds are corporate bonds issued by Public Sector Undertakings (PSUs) in India. PSUs are owned by the Government of India and are some of the most financially stable companies in the country. PSU bonds are one of the safest investments in India and offer returns that are higher than bank fixed deposits.
PSU bonds offer many benefits to investors, including:
- Safety: PSU bonds are considered one of India’s safest investments. This is because PSUs are owned by the Indian government and are therefore less likely to default on payments.
- High returns: Interest rates on PSU bonds are generally higher than those offered by bank fixed deposits. This makes them an attractive option for investors looking for higher investment returns.
- Flexibility: PSU bonds offer investors greater flexibility than bank deposits. Investors can choose to receive interest payments monthly, quarterly, or annually, depending on their preferences.
- Tax benefits: Interest income from PSU bonds is exempt from tax up to Rs. 5,000 per annum. This makes them a beneficial investment option for tax-saving purposes.
Key Advantages PSU Bond
- Diversification – PSU bonds can provide portfolio diversification away from traditional asset classes such as stocks and bonds.
- Yield Enhancement – PSU bonds tend to offer higher yields than other fixed-income securities, making them an attractive investment for income-seeking investors.
- Stability – PSU bonds tend to be very stable, providing a measure of safety and security in an uncertain world.
- Capital Appreciation – Over the long term, PSU bonds have shown the potential to appreciate in value, providing investors with the potential for capital gains as well as income.
- Liquidity – PSU bonds are highly liquid, meaning that they can be easily sold in the secondary market if necessary.
How to Invest in a PSU Bond / Investing in PSU Bonds
There are many reasons to invest in PSU bonds. They are a safe and secure investment, they offer a high rate of return, and they are tax-free. Here is a step-by-step guide on how to invest in a PSU bond:
- Decide how much you want to invest. You can invest any amount you want, but most bonds have a minimum investment of $1,000.
- Choose the term of the bond. The term is the length of time that you want to invest for. PSU bonds typically have terms of 5, 10, or 20 years.
- Figure out the interest rate. Interest rates on PSU bonds are fixed, so you will know what your interest rate will be for the entire length of the term.
- calculate the interest payment schedule. Your interest payments will be made every 6 months. You can choose to have your interest payments paid directly into your bank account, or you can reinvest them into more bonds (this is called compounding).
- When the term is up, you will get your original investment back plus any interest that has accrued.